A discount (also known as a lender's fee) is a fee typically charged to a dealership to accept a loan, or the difference between the amount paid for a loan note and the face value of the note. LoanPro offers the capability to set a discount amount and calculation type when creating or editing a loan. The discount calculation type affects how a payment's principal, interest, fees, and discount is allocated without changing the total payment amount. If you set a discount amount on a loan, how it's applied to your loans' payments is up to you and your lending strategy. 

Applying discount to a loan

Discount application on a loan is found in the ‘Setup Terms’ tab when either creating or editing a loan. Navigate to the [desired account] > Account Setup > Setup Terms > Loan Terms. You must inactive the loan if it has already been activated to edit these settings. Here, you can enter the discount amount for the loan. If you'd prefer, you can instead set your discount amount as a percentage of the total loan amount by clicking the 'Show %' button.

Discount calculation

Set the discount calculation type in the ‘Advanced Configuration’ tab.

LoanPro's discount calculation option lets you select from five different methods of calculating the discount portion of loan payments. To illustrate the differences in the discount calculations, we will use a 24-month loan for $10,000 with a $1,000 discount as an example.

1. Full: Replaces the principal portion of a payment with the discount. Once the full discount amount has been paid ($1,000 in this example), the borrower will begin paying the principal on their remaining payments.
2. Percentage: Uses a percentage calculation to determine how much discount will be paid off in each payment. The discount amount is calculated by determining the ratio between the total discount amount and the total loan amount. In our example, $1,000 of discount is 10% of our $10,000 original loan balance. We can then compute the exact discount portion of a particular payment by multiplying the principal portion by 0.1. If our payment amount is $325.39 and our discount percentage is 0.1, the discount portion of the current payment is $32.54.
3. Percentage fixed: Works very similarly to ‘Percentage’, with a slight difference. Payments made before the first due date will still put money towards the discount.                                                                                                                                            
4. Rebalancing: calculates a value as the unpaid discount divided by the remaining term of the loan. In our example, since this is the first payment on the loan and the payment hasn’t come due yet, the unpaid discount can be calculated as the original discount of $1,000 divided by the 24-month term of the loan. The discount per period will be $41.67. This may change for future payments depending on whether the borrower pays on time and pays the full amount. A short first period may affect the discount amount as well.
5. Straight line: works similarly to ‘Rebalancing’, but the discount and principal portions are calculated only once for the loan, and they don’t change based on payment schedule or how timely the borrower repays the loan. The principal and interest portions of the first payment are exactly the same with the ‘Rebalancing’ and ‘Straight Line’ methods. The discount portion of the ‘Straight Line’ payments won’t change until the final loan payment.                                                                                                                                  

Once you're satisfied with your loan's terms, click 'Save & Calculate' to save the settings you've selected. Scroll down to the 'Schedule Tools' button and select 'Configurable Payment Schedule' to preview how your discount is applied to the payments of the loan.

View discount breakdown

You can view the discount breakdown of an activated loan on the loan transactions tab. Navigate to a loan account and select Reports > Transactions. Here, you can view how the discount has been applied to the payments on the loan. In addition, the side panel on the right displays a breakdown of each portion of the loan. 

Discount in reports

You can also view discount at the tenant level. If you would like to see a breakdown of how discount has been applied to all loans within your account, navigate to Reports > Transactions History > Payment Breakdown.

The Payment Breakdown section (highlighted in the top left corner) of the ‘Reports’ tab provides a breakdown of payments that have been made on loan accounts within your company over a date range. You can view how discount has been applied to payments you have received.

The  'Log Date Period' filter on the left allows you to view payments in a specific date range. Under the 'Payment Application' section, you can see how the payments are broken down into principal, interest, fees, discount, and others. Next to the payment application is a pie chart that visualizes how these categories make up the whole. At the bottom is a list view of each payment received. When you use the ‘Payment Breakdown’ report, you may notice that your account shows different columns than our example. To display or hide columns, click the highlighted button with the three stacked columns on the left side of the list view.